If you are not a US resident, the following types of companies are available to you: LLC and / or C-Corporation
To help you understand the structure and structure of the different types of companies, we provide a list of common types of companies in the state of Delaware:
Company Types: Limited Liability Companies – Limited Liability Companies (or LLCs)
A limited liability company (“LLC” or “company”) assumes limited liability for all its members, regardless of title or participation in management. This means that no member is personally liable for the debts and obligations of the company; The most that anyone can lose is their investment. LLC is the most popular business unit in Delaware, surpassing even corporation types. In 2019, for example, LLCs will account for roughly 73% of all organizations established in Delaware, compared to 20% for corporations.
Operating agreement and flexible terms
The operating agreement of the LLC governs its operation, management, distribution of profits, rights and obligations of members, and other terms. These terms can be customized between the given store with very few restrictions on members. The operating agreement may even amend or terminate the trustee duties that members may owe to the Company and other members. If an operating agreement does not cover a key term, Delaware law contains default provisions to make up for the shortfall. The versatility of an LLC is at the heart of its advantage and popularity, and the Delaware Act explicitly states that the LLC type of form is intended to “have maximum effect on the principle of freedom of contract [.]” [Source: Delaware Limited Liability Company Act, 6 DE Code § 18-1101 b) (2018.)
Options for managing an LLC
An LLC may also be managed through its members (as a whole or on a board of members), one or more “executive members” or a third party manager. Other conditions and the ability to act without the consent of the shareholder are also provided for in the operating agreement. When a company is supervised by a third party, it usually has a separate governance arrangement with that entity. For example, a company may set up a board of directors (similar to directors) and issue resolutions to commemorate decisions, provide permits, and make decisions.
An LLC can have only one member of a company type and can continue to provide it with limited liability (i.e., only the member’s investment can be lost). However, if the member does not manage the company and its assets separately from the member, the court may review the company and impose the obligations of the LLC on the sole member. Through a company or LLC, the debts and liabilities of an entity are called a push on one or more members.
The LLC does not issue shares. Instead, members hold a percentage stake in the company (although some LLCs express ownership of the units for administrative purposes). If members wish to be granted variable voting, economic, or other rights, the LLC may issue regulations to protect the interests of its membership in various departments.
The LLC is generally taxed unless the Internal Revenue Service (IRS) decides otherwise. Under transferor taxation, types of LLCs are not taxed, so members are generally required to pay each tax liability on their share of the distribution of the entity’s profits and losses, even if those amounts have not been distributed (‘phantom income’). often only through allocations intended to meet the tax liability on income not actually received).
An LLC is not an ideal choice for a start-up that relies on multiple rounds of venture capital, as many sophisticated investors do not invest in the LLC firm type, partly because the transferor’s tax treatment of the company is complicated. Preparation of K-1 and other materials to be distributed to an LLC by a large number of investors can be a logistics nightmare for the organization. The LLC type of company is often used to launch private equity funds rather.
Establishment and franchise tax
The LLC is created by submitting the documents and gives a very simple proof of this to the state. The LLC’s operating agreement and membership information, including the identities of its members, are not submitted to the state and are not publicly available. An LLC is required to pay the state a basic $ 300.- USD franchise tax by June 1 of each year. (which our company helps LLC customers with both a reminder and a payment), so, you don’t have to pay variable franchise tax to companies.
Company Types: Series Limited Liability Companies
If you are considering establishing a Series LLC company type, we encourage you to consult with us first to fully understand the functions and legal status of the Series LLC company type, as well as the issues in the operation of Series LLC (and the series) and the expected business or industrial. Series LLCs are most commonly used to hold separate assets (such as real estate or valuable tangible assets), separate co-invested cumulative assets (particularly through online community funding portals) and some private funds.
An LLC series (“Series LLC”) is a single type of LLC that can stand alone and create “series,” each
(1) may hold its own assets, assume its own debts and liabilities, have its own members and control, be sued and sued in its own name, and may also account for its own business lines,
(2) is taxed separately, receives transferring treatment unless it decides otherwise, and
(3) is effectively treated as a single LLC compared to other series, so that the debts and liabilities of a series can be enforced only against the assets of that series and not generally against the assets of the LLC series or any other series.
Registered Series LLC Vs. Protected Series LLC
Registered Series LLC or Protected Series LLC can also be established. Registered Series LLCs, which will only be codified in the Limited Liability Company Act in 2019, will be established through an application to the state and will be able to obtain a Good Standing Certificate in their own name, i.e. Good Standing. The Delaware Limited Liability Company Act specifically regulates Registered Series LLC issues that were not previously clear in the context of Series LLCs, making it clear that a Series LLC may be individually bankrupt and the Registered Series LLC Security interests in LLC membership interests have been “perfected” by creditors plus one member. It is easier to obtain a bank account for a registered LLC because the state provides simple documentation of a standard LLC. (evidence of its formation, Apostille, etc.)
The Protected Series LLC company types are the only series available before August 2019, when Delaware law was amended to mark the Registered Series. The Protected Series is created through the internal resolution of Series LLC and is less formally documented. A Protected Series LLC cannot receive a good quality certificate in its own name, (Good Standing) and Protected Series are not required to pay an annual franchise tax.
Operating agreement and serial accessories
Series LLC itself is governed by an operating agreement that governs, among other things, the creation and maintenance of Series.ek, and each Serie should similarly be governed by its own supplementary guidance document. In accordance with the standard LLC, the operating agreement for the LLC Series and each Series may also specify the relationship between the parties and, where applicable, the conditions governing the operation of the LLC Series or Series.
Establishment and franchise tax
The establishment of Series LLC is simply certified by the state. Series LLC is required to pay the state a basic $ 300.- USD franchise tax each year, so it does not have to pay the variable franchise tax. A registered Series LLC company type, as already mentioned, is created by submitting documents that are certified by the state. Registered Series LLCs are required to pay an annual $ 75.- USD annual tax. However, Protected Series LLCs do not pay an annual tax.
Company types: Public Benefit LLC
Public benefit LLC is a relatively new form of business. It operates as an Llc type of company and is structured, however, its certificate of incorporation includes a statement of a specific benefit purpose that it intends to pursue in addition to its nonprofit business. Such public benefit activities may include, for example, “expanding access to quality Internet access in rural or disadvantaged communities” or “improving the nutritional value of school lunches in State X”.
Management and public benefit functions
Management options and flexibility in this type of company are combined with equal strength in a public benefit LLC.
One key difference is that in managing a public benefit LLC, management is able to balance the interests of the environment and society, the entity’s specific “benefit” purpose, and maximize the return of members without violating their duty of trust to the entity and its members. (unless such trustee functions have been terminated by the operating agreement).
The management of a public benefit LLC is not liable to anyone for public benefit purposes (e.g., no one can sue and demand that the director make a decision against the established public benefit organization or sue, saying that the board has not complied with such benefits until as long as management decisions are informed and become uninteresting and not so unfounded “that no one would make a well-founded judgment”.
In addition, a non-profit LLC may argue that management cannot be found to have acted in bad faith or may have breached its duty of loyalty if the failure to strike the right balance of permissible considerations was “uninteresting” (e.g., no actual conflict can encourage or another advantage).
Public benefit report
In addition, types of public benefit LLCs must report to shareholders on a at least biennial basis (i.e., every two years) that describes the public benefit LLC’s pursuit of its public benefit purpose and how it has considered the interests of those severely affected by the public benefit LLC’s conduct.
Company types: General Corporation
This is the standard company that the state of Delaware is so well known for. A Delaware company is often chosen for start-ups that expect rapid growth, accept multiple rounds of financing from venture capitalists and potentially later private equity investors, and eventually become public or sell the company to a strategic buyer. The general corporate form is less flexible than a contractual LLC; the company law conditions govern the affairs of a company that has only limited ability to modify and customize its requirements.
Management – Board of Directors and corporate officers
The company is managed by a board of directors, which is elected by the shareholders (or appointed by shareholders who have special rights to do so, such as key investors). The board of directors is responsible for significant decisions, determines the direction and strategy of the company, oversees the officers appointed by the board of directors for the day-to-day management of the company, and makes decisions on key transactions (new business lines, major strategic changes and important transactions such as mergers, divestments and joint ventures). among others). As they wrote, a company is managed on a day-to-day basis by officers (e.g., CEO, CFO, secretary, etc.).
Officers and directors have a duty of trust with the company and its shareholders, which includes due diligence (acting with due care and attention) and a duty of loyalty (acting in the best interests of the company, avoiding conflicts of interest, or disclosing and dealing with them). , does not take into account the appropriate options for the company (with certain exceptions)). Delaware law allows a company to provide that directors will not be liable for pecuniary damages for breach of duty of care, but cannot waive liability for breach of duty of loyalty.
Benefits of company law
One of the main advantages of founding a Delaware company is the huge and highly sophisticated case law body promulgated by an experienced and knowledgeable judiciary. Much of this case law was developed by Delaware’s Chancery Court, a court set up specifically to deal with company law matters, among other things. These cases provide insights for officers and directors to fulfill their duties of trust in a wide variety of circumstances, standards for judicial review of conduct, criteria for shareholder litigation and litigation (derivative litigation) on behalf of the company, and management and shareholder rights and its obligations in general and in relation to each other, inter alia. This case law body provides predictability that allows corporate boards and officials to plan and manage the company on a case-by-case basis and more accurately assess potential liability for their decisions and decision-making processes.
Capital and share classes
General Corproation types of companies issue shares to their shareholders, which may include different classes of shares with different rights, privileges and obligations. The stock usually has one vote per share and few additional rights. Often, “venture capital raising” large investors buy preferred shares or convertible assets that give them higher rights to common stock, such as
(1) the right to appoint directors or observers to the board of directors,
(2) exercise a veto over certain key transactions,
(3) exercise more votes per share than the company’s ordinary shares,
(4) decides to participate in the next rounds of financing in order to maintain or increase its percentage ownership,
(5) changes the terms and conditions of its shares and investments to reflect better terms and conditions for other investors (most-favored-nation clause);
(6) receives a cash distribution before distributing it to the holders of common shares, and / or
(7) in the event of a merger, receive a higher share value, acquisition or sale of assets.
Entity Taxation (C-Corp) and Transitional Choice (S-Corp)
Corproation company types are generally taxed as an entity, which means that the company pays tax on its income at corporate tax rates, and shareholders also pay tax on dividends from the company at a favorable dividend or capital gains rate. When a company is taxed as an entity, it is called a “C-Corporation”.
However, a company may design itself by being taxed by the tax office as a transferring entity, such as a limited liability company or an LLC. If a company has built itself up and done the above, it is called an “S-Corporation”, which refers to this section of the Tax Code that provides for tax treatment. If a company wishes to choose S-Corporation status, it must structure the ownership and other conditions to meet certain requirements (see below). Its shareholders are taxed on their distribution of profits or losses, regardless of whether those amounts are actually distributed (the “Phantom Income”).
If shareholders do not respect the corporate form or themselves, the court will “pierce the corporate veil” in the case of the lawsuit. In such a case, the shareholders are personally liable for the debts and obligations and find that the shareholders are personally liable for the debts and obligations of the company. Respect for the separate operation of the company form includes the maintenance of proper company records, the formalities for issuing resolutions, compliance with the company’s governing documents, and the fact that the company’s assets must not be managed in accordance with the shareholder’s assets.
Company types: S-Corp vs. C-Corp
C-Corporation company types refer to a general corporate tax status and are not a separate type of company. The C-Corporation is taxed at the corporate tax rate and the shareholders are taxed by the distributions made by the company. This is often referred to as “double taxation”, although this is a general rule for companies and is not avoided as actively as this reference would mean. C-Corporation status is the default taxation for general corporations.
S-Corporation company types are simply a general company that complies with certain requirements and internal revenue rules 1. S-Corp is used when the founders of a company want the corporate form, structure and legal structure to regulate its operations and activities. and its internal operation, but they want to avoid “double taxation” at C-Corporation, which means that the company’s profits are subject to corporate tax and then the company’s distribution tax to shareholders (usually at favorable dividend tax rates).
To be eligible for S-Corporation status, the following must be met for the company:
(1) all shareholders are natural persons and not organizations,
(2) all shareholders are U.S. citizens or U.S. residents,
(3) all shareholders must contribute to the company choosing S-Corporation status,
(4) the company must have less than 100 shareholders, and
(5) the company must issue only one class of shares, all shareholders of which have the same rights after the dissolution of the companies. Failure to comply with any of these requirements could result in the loss of S-Corporation status, which would have significant tax consequences for shareholders and result in significant complexity.
Company types: Close Corporation
The Close Corporation is a special type of company, designed for a small number of U.S. shareholders, and is most commonly used in close-knit, family businesses that do not expect to expand their ownership base or sell their interests, or the company as a whole. Nearby companies are not widely used.
Certain terms of a nearby company are different from those of a general company. A nearby company can have only 30 shareholders, all of whom can only be U.S. residents, and can restrict the sale of its shares (usually by giving each shareholder pre-emptive rights over the sales of another shareholder). In general, a Close Corproation is taxed as a C-Corporation (at the entity level) unless it chooses to be treated and meets the requirements for treatment as an S-Corporation with transferring taxation.
Company types: Non-Stock Company
Delaware’s non-corporation is primarily a non-profit, tax-exempt organization – particularly the Internal Revenue Code 501. The non-corporation form is intended to meet the requirements of the internal revenue regulations for nonprofit status and to facilitate the application for tax-exempt, nonprofit status once the company is formed. A non-public company in Delaware does not issue capital and therefore has no shareholders. Instead, it has members who have different rights and can be members with voting or non-voting rights. A non-joint stock company is usually managed by a board of directors.
The establishment of a non-public limited company does not in itself confer non-profit or tax-free status. The company must apply to the IRS and meet the relevant requirements of its internal revenue policy under the provisions of the code selected for entitlement to such status.
Company types: Public Benefit Corporation
A public benefit corporation is a relatively new form of business. It operates and is structured as a company and can conduct any type of business for a standard Delaware company. However, the memorandum of association contains a statement of the specific public benefit activity that it intends to pursue in addition to the non-profit business. Such a public benefit could be, for example, “expanding medical care in poorly served areas,” or “improving the ability of downtown Baltimore residents living in“ food deserts ”to obtain nutritious foods and ingredients.”
Management and public benefit functions
The management options and general terms of a public benefit corporation are generally the same as those of a simple general partnership.
One of the key differences is that in managing a public benefit entity, directors are able to balance the interests of the environment and society, the specific “benefit” purpose of the entity, and maximize shareholder returns without violating their duty of trust to the company and its shareholders.
Furthermore, the directors of a non-profit company are not liable to anyone for public benefit purposes (e.g., no one can sue and demand that the director make a decision against the established non-profit organization or sue saying that the board has failed to comply with such benefits) until they are informed and not interested in the decisions of the board of directors (e.g., the directors have no conflicts of interest) and are not so unfounded “that no ordinary person would approve of a well-founded judgment”.
In addition, the UCI’s memorandum of association may state that the board of directors cannot be found to have acted in bad faith or breached its duty of loyalty if the failure to strike the right balance of permissible considerations was “uninteresting” (e.g., no actual conflict should encourage give preference to one constituency over another, for example, if a business owned by a director’s family member has received funds as part of public expenditure).
Public benefit report
In addition, the non-profit company must provide shareholders with a report on at least two years (ie every two years) describing its efforts to achieve the public benefit purpose of the public benefit purpose and how it has taken into account the interests of those significantly affected by the public benefit purpose.
Company types: Limited Partnership
A limited liability company (or “LP”) provides a limited liability company to its limited liability companies, but it must be managed by a general partner (which may be a person or a person may be an entity) who has unlimited personal liability for the debts and liabilities of the limited liability company. A limited partner cannot participate in leadership without significant consequences; the limited liability partner involved in the management is treated as a general partner who has unlimited personal liability for the debts and obligations of the company. Often, a general partner will be structured as an LLC or corporation to ultimately treat those responsible for protection against limited liability.
The limited liability company establishes joint stock company interests that operate as LLC membership interests. The value of the interest of the limited liability company is determined by the capital account of the limited liability company.
One of the main benefits of setting up an LP in Delaware is that the limited partner’s own creditors have limited remedies for debts outside of LP in the interest of the limited partner. The creditor cannot exclude the interests of the limited partner. The only remedy available to the creditor is a court-ordered injunction in which the creditor may only replace the member in respect of economic distributions but may not vote on interest and otherwise exercise its rights as a limited partner (including coercion of distributions or dissolution of the LLC). ).
The limited partnership is taxed as a transferring entity, which means that the corporation itself is not taxed, but members must pay into their tax their share of the distribution of profits and losses, even if the amounts have not been distributed among themselves (e.g., “phantom income”). ”).
Depository companies are used much less frequently than LLCs.
Company types: Public Benefit LP
The public utility LP is new from 2019. It is like a regular limited liability company, but you choose a limited liability company as defined in its public benefit statement, which pursues together for for-profit purposes and activities. Such a public benefit could be, for example, “expanding medical care in poorly served areas,” or “improving the ability of downtown Baltimore residents living in“ food deserts ”to obtain nutritious foods and ingredients.” See the discussion on limited liability companies in this section for a more detailed description of such organizations, and thus the public benefit LLC.
However, a public benefit LLC has certain special characteristics and requirements. For example, a general partner is able to balance the interests of the environment and society, the specific “benefit” objective of the entity, and maximize shareholder returns without violating the depositary’s duty of trust.
Furthermore, the management of a public limited company is not liable to anyone for public benefit purposes (e.g., no one can sue and demand that the court make a decision against an established public benefit organization, or sue, saying that the principal partner has not complied with such benefits) , as long as the general partner’s decisions are informed and not of interest (e.g., management has no conflict of interest) and not so unfounded that “a single ordinary, well-founded judgment would not be correct”.
In addition, the public limited partnership’s certificate on the limited partnership may state that the general partner cannot be found to have acted in bad faith or breached its duty of loyalty if the failure to strike the right balance of permissible considerations was “uninteresting” (e.g. no actual conflict should not be encouraged to favor one constituency over another, for example, if a business owned by a director’s family member has received funds as part of public expenditure).
Company types: Series Limited Partnership
Delaware law provides that a limited liability company may be divided into a Series type as a Series LLC (the “Series LP”). The Series LP works nearly identically to the LLC series, and the same concerns and considerations apply. Please refer to the series LLC description for the current description of the series concept.
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